hotmail randomly sending e-mails to contacts

Hello. I was alerted to this problem a few days ago when I received the unsendable error message in my hotmail inbox saying the e-mail could not be delivered because the recipient had spam blockers. The message has returned a few times each day from approximately 8 e-mail addresses that I rarely, if ever, use; only one is used every 3-6 months. I immediately ran my norton and spybot sd, both of which I keep updated, and both of which said I had no infections. I've checked my sent e-mails and see that this e-mail, which is titled something like "I played this free game for a few minutes", was only sent to about 12 or 15 people, and since I rarely e-mail them I deleted their addresses, except one. This morning, the sent list for that e-mail included that one e-mail address and one new e-mail address, and I have deleted both from my contacts on hotmail.

A second problem which may be related is that I have been unable to download SP2 since it came out; when I get a message that windows has an update for me, if I click to allow it to install, it always comes back that it could not be installed, the system is unstable, please remove programs. It's happened so many times in the past few years that I ignore most windows downloads. A week ago or so Norton wanted to download its 2007 update, which required both SP2 and The latest Explorer to be installed. I tried again to install SP2, and it was blocked, meaning I could not update Norton. I tried to follow a thread (I think form this site) to allow SP2 to install and cleared out some files, but still no success. At some point in the last few days, I tried but could not download AdAwareSE.

I have worked through the 5 steps before posting, and besides not being able to get the SP2 download, I also could not open the DSS.exe file, although I have downloaded it onto my desktop.

I ran the Panda check, and I have attached that log.

I'd be appreciative of any directions you might have!
thanks, peace,
Tony